The Importance of Financial Accounting
The Importance of Financial Accounting
Introduction
According to Weygandt, Kieso and Kimmel (2012), financial accounting is identifying, recording and communicating the economic events of an organization to, mainly, external users. Through financial accounting, some financial reports will be generated. Four financial statements are frequently used to report and analyze the financial status of companies and they are Income statement, Retained Earning Statement, Statement of Financial Position and Statement of Cash Flow. These financial statements can always give useful information to users.
The objectives and roles of financial accounting The Financial Accounting Standards Board, known as FASB, (1978, 1980, as cited in Nicholas & Shyam, 1980, p.1) stated the major objective of financial accounting is “to provide useful information for decision-making”. It gives the foundation to users to plan, control and make decision with great assistance, for instance, internal users like managers need the information about profit or loss, return, cash on hands, budget and the like. Also, external users have little authority to access the information so they rely on financial statements to know about the economic resources, financial position, earning power and the like. Others objectives includes recording business transactions so that the daily operations can be marked to reduce error, calculating net income or net loss to reveal the performance of companies and effect of the decisions made, and illustrating financial position to know whether the company is more advanced when comparing to other organizations. To achieve the above objectives, financial accounting has a number of roles. Firstly, it acts as a quantitative financial information provider that communicates with the stakeholders and assists the users to make better decisions. It also acts as data handler. It identifies, classifies and summarizes the data into financial reports and statements to
Introduction
According to Weygandt, Kieso and Kimmel (2012), financial accounting is identifying, recording and communicating the economic events of an organization to, mainly, external users. Through financial accounting, some financial reports will be generated. Four financial statements are frequently used to report and analyze the financial status of companies and they are Income statement, Retained Earning Statement, Statement of Financial Position and Statement of Cash Flow. These financial statements can always give useful information to users.
The objectives and roles of financial accounting The Financial Accounting Standards Board, known as FASB, (1978, 1980, as cited in Nicholas & Shyam, 1980, p.1) stated the major objective of financial accounting is “to provide useful information for decision-making”. It gives the foundation to users to plan, control and make decision with great assistance, for instance, internal users like managers need the information about profit or loss, return, cash on hands, budget and the like. Also, external users have little authority to access the information so they rely on financial statements to know about the economic resources, financial position, earning power and the like. Others objectives includes recording business transactions so that the daily operations can be marked to reduce error, calculating net income or net loss to reveal the performance of companies and effect of the decisions made, and illustrating financial position to know whether the company is more advanced when comparing to other organizations. To achieve the above objectives, financial accounting has a number of roles. Firstly, it acts as a quantitative financial information provider that communicates with the stakeholders and assists the users to make better decisions. It also acts as data handler. It identifies, classifies and summarizes the data into financial reports and statements to
References: Financial Accounting Standards Board, S. (29 May 2008). Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision-Useful Financial Reporting Information. Retrieved October 24, 2012 from http://www.fasb.org/cs/BlobServer?blobkey=id&blobwhere=1175818772037&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs Horizon Community Bank, J. R. (2012). Horizon Community Bank Newsletter Article. Retrieved October 29, 2012 from http://www.horizoncommunitybank.com/download/HCB-NEWSLETTER-0512.pdf Nicholas, S. & Shyam, S. (1980). JSTOR: The accounting review, vol.55, No.1(Jan.,1980), pp.1-21. In FASB 's Statements on Objectives and Elements of Financial Accounting: A Review,55(1). Retrieved October 26, 2012 from http://www.jstor.org/stable/246167?seq=1 Stocken, J. R. (2004). Financial reporting system choice and disclosure management. In Accounting Review. Retrieved October 24, 2012 from http://business.highbeam.com/435621/article-1G1-124793372/financial-reporting-system-choice-and-disclosure-management Weygandt, J. J., Kieso, D. E. & Kimmel, P. D. (2012). Financial Accounting.: John Wiley & Sons. Williams, J. R., Haka, S. F. & Bettner, M. S. (2006). Financial Accounting Information. Retrieved October 26, 2012 from http://highered.mcgraw-hill.com/sites/0072996501/student_view0/ebook/chapter1/chbody3/financial_accounting_information.html